How a Supreme Court labor case may boost municipal budgets

A pending U.S. Supreme Court case could have a ripple effect on states and municipalities with strong union powers.

The case of Janus v. the American Federation of State, County, and Municipal Employees centers around an Illinois government employee challenging the practice of withholding fee collections from the paychecks of workers, whose jobs are covered by a union contract, but opt not to join unions. The union dues, known as “agency fees”, have amounted to hundreds of millions for 22 non-right-to-work states and large localities like New York City. Oral arguments are slated to begin on Feb. 26.

The U.S. Supreme Court will decide whether government workers should pay "agency fees" if they opt not to join union in a case that could lead to increased budgetary flexibility for some states and local governments.

“The Janus case boils down to a fundamental question of whether workers should be forced to pay an organization, especially one as political as a government union, as a condition of keeping their job,” said Ken Girardin, an analyst for the Empire Center for Public Policy. “It’s already clear that many government workers don’t want to financially support their workplace union, and only pay agency fees because they’re forced to."

Girardin authored a report released last month showing that New York State would receive at least $112 million in extra revenue if the nation’s highest court puts an end to compulsory fee collections for government workers, which many legal observers predict due to the court’s conservative makeup. The Empire Center analysis says that New York government unions collected $862 million of dues and fees in 2016, which included $53 million that was automatically deducted from the paychecks of New York City and state employees who chose not to become union members. An estimated $50 million in additional agency fees derived from workers in other local governments, school districts and public authorities, according to the conservative think tank.

Dan DiSalvo, an associate professor at the City University of New York and senior fellow at the conservative-leaning Manhattan Institute, said if the high court case goes against labor, it will take around five to 10 years before determining the union membership declines and the revenue impact to municipalities. He stressed however that the loss could be immediately “fairly substantial” pointing to the large non-union members contributing in states like New York, New Jersey and California before factoring in others who may drop off.

“Stronger public unions lead to more expensive government,” said DiSalvo during a recent Manhattan Institute media event. “They drive up the cost of government both in terms of salary and benefits.”

DiSalvo stressed that the Janus case may create some budgetary relief for New Jersey, which faces fiscal challenges due largely to unfunded pension liabilities. New Gov. Phil Murphy campaigned on a proposal to structurally balance the state budget with a millionaire’s tax, but his plan faces tougher political barriers now because of the newly implemented federal tax legislation that caps deductions on state and local taxes. He said that strong union groups like the New Jersey Education Association have major influence on spending in the Garden State that would be changed if the case goes in the way of Janus.

“You are constrained on the revenue side,” said DiSalvo of New Jersey’s limited taxing flexibility. “But on the other side you could say that the benefit coming courtesy of a conservative supreme court is to take a little bit of the heat off and pressure off to make some moves to adjust to that reality by weakening groups like the NJESA.

Girardin forecasts that the end of agency fee payments would result in membership drops of 20% for New York State United Teachers and 26% for the state’s AFSCME councils. His report says many New York state and local government agencies will need to update their payroll systems to ensure they can promptly comply with a decision that would end compulsory fee collections.

While organized labor is facing an uphill battle, some states and local governments have joined in the fight to try and bring a victory to AFSCME by filing amicus briefs on behalf of the union. New York City Mayor Bill de Blasio said after the city’s Jan. 22 brief filing that AFSCME winning the case is crucial to the success and survival of labor unions.

“Our city is stronger because of unions’ ability to organize and fight for all of our rights,” said de Blasio in a statement. “Especially in the face of our current political climate, we should be bolstering tools for empowering and protecting workers not making them more difficult to come by.”

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